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Friday, October 29, 2010

The Profit Motive

By Michael Totty

The Battelle Memorial Institute was founded in the 1920s to encourage "creative and research work and the making of discoveries and inventions." When it opened its doors on the eve of the Crash of 1929, it had fewer than 50 people, dedicated mainly to metallurgical research.

Today, the Columbus, Ohio-based nonprofit—whose motto is "the business of innovation"—employs 23,000, runs an in-house research-and-development lab and manages or co-manages eight national laboratories for the federal government. The institute also conducts contract research and development for companies, mainly small and midsize businesses that don't have their own R&D shops. And it does contract manufacturing—for instance, it makes parts of the cockpit display for the Army's Black Hawk helicopter—and maintains its own venture investment fund.

Its most famous product is the office copier. Chester Carlson, a New York lawyer, had invented a method to duplicate printed documents but lacked the backing to commercialize the technology. In the early 1940s he took it to Battelle, which developed Mr. Carlson's concept and later licensed the technology to the company that would become Xerox Corp. Battelle's lab also has turned out the technologies behind the compact disc, automobile cruise control and the bar code.

The Wall Street Journal's Michael Totty recently spoke with Jeffrey Wadsworth, who has been Battelle's chief executive since early 2009, about managing a large research-and-development organization, fostering an inventive culture and what we get wrong about innovation. Here are edited excerpts of that conversation.

MR. WADSWORTH: When Battelle scientists think they have an interesting idea, they have what is called an invention disclosure, where they write down what that idea is. Then a group of people evaluate which ones of those are worthy of investing the money needed to have a patent application.

WSJ: What are the criteria you use?

MR. WADSWORTH: One of them is: Can you conceive of this invention creating a product that is useful to society and makes money?

Another way of thinking about it, which is more defensive, is to say, "We've discovered something. Somebody else may discover it, and we don't want to have to pay them for that. Therefore we're going to patent it to protect ourselves."

Most of the things that we're working on are a race to be there first. Innovation's good, doing it fast is better and doing something with it is really the objective. When we look at what we want to patent, we have to think, are we going to make money out of it? It's not like we want to patent in order to have a publication.

WSJ: Battelle has been doing this for a long time. Do you have a secret sauce, and if so, what is it?

MR. WADSWORTH: We are a different kind of company. We have a lot of labs and look like a university at some level. But we try to operate more like a business.

WSJ: How does that combination of pure research and a business orientation help foster innovation?

MR. WADSWORTH: Some universities—certainly not all of them—will leave discovery on the floor, or it won't get developed, because often a company will not want to invest in something that's available to everyone because they won't then have an advantage.

Industry will often work with a university to use the resources of the university and hold the information proprietary. That often isn't something the university wants to do. They want to publish.

We're in a different business.

If a client comes to us and wants to have us solve a problem for them and wants that kept extremely confidential and private, we do that. We have that capacity. We also conduct work for the federal government that needs protecting. We'll do basic research, applied research, but we'll also hold the results very, very confidential. And that makes us different.
Current State of Innovation

WSJ: We've seen an incredible wave of innovation over the past 40 years. How would you describe the current state of innovation?

MR. WADSWORTH: There are more people being educated in more parts of the world. There's more cross-fertilization.

People from other countries come to the United States because 17 of the top 25 universities in the world are still in the United States. In the '70s they came and stayed. But nowadays, you can go back to your home country with education and insights and the network you've built in the United States, and you can live with your family and eat your home food.

We built a nanoscience center at Oak Ridge National Lab and one at Brookhaven. When I went to Beijing about three or four years ago, I went to Tsinghua University—it's their MIT. They had a brand new nanoscience facility there. The building was filled with Chinese nationals who had returned from somewhere else.

[The director] had a name for them: They're called hai gui—sea turtles. They had gone out, and they've come back.

The work they were doing was just as good as ours. The equipment they had was just as good as ours. The facility was just as good as ours. And the people were just as good. Technology evolution and development is far more global than it was.

Another thing that's happened is that the ownership of the entire lineage of discovery is no longer found in a company. I worked at Lockheed in the early '80s. Lockheed is very much like other big companies. They did not like to rely on other people for critical parts of their discovery chain.

It was almost seen as weakness if you had to go and get help from somewhere else. That not-invented-here syndrome has markedly moved to one we call "proudly found elsewhere."

That's a big shift.

WSJ: You're a big organization devoted to innovation. How do you avoid the problems of big organizations?

MR. WADSWORTH: If you'd talk to some of our people, they'd say we haven't. Because when you get to be very big, you end up putting a lot of processes in place to ensure that you're not violating the plethora of regulations, rules and expectations of big organizations. That can become stifling.

We all try to minimize it by being aware of it.

And at the same time, you can't expose the company to devastation by having a small group do something that's not being monitored and they get into trouble.

WSJ: How do you do this?

MR. WADSWORTH: It's impossible to know everything that's going on at an organization like ours. Often what you do is—we call it a deep dive. So that's one thing we do: Get data from the people who work for you.

Another way is to constantly benchmark.

I'm not a huge fan of benchmarking, because you're comparing yourself to the current, not the future. But if you find you have 10 times as many people in some support function as everyone else—first of all, you need to know that. Then you have to ask why. It could be a good answer, but it might not be.
Fostering Innovation

WSJ: What can you do to foster a culture of innovation?

MR. WADSWORTH: The tone at the top for what you want to see done is absolutely essential. If you tell a laboratory that you're only going to do basic research and that's all we're going to value, you won't get the same productivity commercially as you would if you say, I love basic research, but I also want to embrace the fact that we're here to put products out to the community, to the country, to help foster economic well-being for the United States.

You can encourage it in lots of ways financially. You can give rewards for things that you want to have done.

This is manifest throughout industry and universities. They'll have different ways of rewarding people for innovation. If you publish a patent, you get $1,000, or you get $1 in a frame. Or you get a piece of the action going forward. There are lots of ways that companies and institutions try to financially incentivize new thinking.

WSJ: What are some common misconceptions about innovation?

MR. WADSWORTH: The first one is the Edisonian thing. There is no Lone Ranger.

Most of the things that I've seen be successful have come from remarkably complex teams. If you want to have a successful enterprise, every job has got to be important. You can have the most innovative thing in the world, but if you've got terrible lawyers and terrible accountants and terrible people dealing with customers, it's not going to get out.

Another myth is that stuff happens fast. It doesn't. Xerox was in Chester Carlson's head for a decade before he came to us, and it took two decades to get it out.

The examples you hear about very, very fast return are iconic, but not typical. You'll hear about something being invented and three years later somebody's a billionaire, but I think under close inspection you'll find there's a lot—maybe decades—of work behind it.

Wednesday, May 19, 2010

Google Readies Its E-Book Plan, Bringing in a New Sales Approach


Google Inc. plans to begin selling digital books in late June or July, a company official said Tuesday, throwing the search giant into a battle that already involves Inc., Apple Inc. and Barnes & Noble Inc.

Google has been discussing its vision for distributing books online for several years and for months has been evangelizing about its new service, called Google Editions. The company is hoping to distinguish Google Editions in the marketplace by allowing users to access books from a broad range of websites using an array of devices, unlike rivals that are focused on proprietary devices and software.

Chris Palma, Google's manager for strategic-partner development, announced the timetable for Google's plans on Tuesday at a publishing- industry panel in New York.

Jeff Trachtenberg discusses Google plan to start selling digital books this summer, setting the stage for a battle of the online behemoth booksellers. Plus, Apple attracts antitrust scrutiny from regulators and Congress drafts a web-ad privacy bill.

Google says users will be able to buy digital copies of books they discover through its book-search service. It will also allow book retailers—even independent shops—to sell Google Editions on their own sites, giving partners the bulk of the revenue.

The company would have copies on its servers for works it strikes agreements to sell. Google is still deciding whether it will follow the model where publishers set the retail price or whether Google sets the price.

While Mr. Palma didn't go into details, users of Google Editions would be able to read books from a web browser—meaning that the type of e-reader device wouldn't matter. The company also could build software to optimize reading on certain devices like an iPhone or iPad but hasn't announced any specific plans.

By contrast, Amazon's digital book business is largely focused on its Kindle e-reader and Kindle software that runs on some other hardware.

The project is Google's attempt to crack into the market of distributing current and backlist works.

Publishers have yet to publicly commit to participate in the service but Google isn't expected to run into much trouble getting them to join. Publishers tend to believe the more outlets to sell books the better. Even the smallest independent bookstore will have access to a sophisticated electronic-book sales service with a vast selection of titles.

"This levels the retail playing field," said Evan Schnittman, vice president of global business development for Oxford University Press. "And as a publisher, what I like is that I won't have to think about audiences based on devices. This is an electronic product that consumers can get anywhere as long as they have a Google account."

Google says users will be able to buy digital copies of books they discover through its book-search service.

He said Google Editions will also be critical because it represents "the ultimate test" of whether the ability to search, find and instantly buy content will generate significant gains in revenue. "This tears down barriers," he added.

Retail isn't Google's calling card, but the company has an online store for Android apps, sells software for businesses and it sells a phone.

Google may struggle to build awareness about the service. It is hoping users click to buy books through its Book Search product, which has a relatively small following compared to its overall search service. It is also betting on other book resellers to push and promote Google Editions themselves. Whether they do so will probably depend on how much revenue they are generating.

The online sales effort is separate from Google's fight to win rights to distribute millions of out-of-print books through its digital book settlement with authors and publishers. U.S. District Court Judge Denny Chin is expected to rule in that case soon.

Tuesday, May 18, 2010

Too Fat for Hooters?

Employee says she was told to lose weight or lose her job

Tuesday, May 11, 2010


The Lost Tribes of RadioShack: Tinkerers Search for New Spiritual Home

* By Jon Mooallem
Andy Cohen waves his arm at the electrical miscellany hanging around him, showing off his tubular lugs and a box labeled “81-piece terminal assortment”. Cohen is holding court at the back of the RadioShack store he owns in Sebastopol, California. To his left, a tattooed kid fishes through a metal chest of drawers labeled “fast-acting/slow-blow 3ag-type”. Another cabinet is labeled “capacitors: electrolytic, radial (pcb-mount) leads, axial (in-line) leads”. Behind him, a spinning rack is hung with baggies containing dozens of different brass and gold solderless connectors. They’re the little widgets you think of when you think of RadioShack — the sort of electronic parts the company once had a near monopoly on but that are increasingly hard to find there. Cohen gets much of his supply direct from China. “Where are you going to find all these different kinds of solder? A selection of five soldering irons? All these connectors?” Cohen says. “Other RadioShacks, they hide this stuff or don’t buy enough of it anymore. We go out of our way to show you these things.”

Cohen is 54, with a gruff voice and the intense, deep-set eyes of an older Joaquin Phoenix. As a kid, he built computers, yammered on ham radios, and took special trips to the electronics shops in Lower Manhattan with his dad. He also pored over the RadioShack catalog the day it arrived, studying up on what was then cutting-edge technology — reel-to-reel tape decks, fax machines — and the pages and pages of arcane electronic components.

Cohen bought this store in 2003 after 25 years as a project manager at companies like Hughes Aircraft and Hewlett-Packard. Housed in a strip mall between a pet supply shop and a dry cleaner, it is not among RadioShack’s 4,470 corporate-owned stores but one of about 1,400 franchised dealerships. In exchange for using the RadioShack name, Cohen is required to buy a certain amount of his inventory from the company. Otherwise, he has a lot of leeway. And he has used it to fashion his shop into something like the eccentric, mad-scientist RadioShacks he grew up with. But he knows that he’s largely on his own in this, fighting a battle for the soul of the company that’s pretty much been decided everywhere else.

Recently, RadioShack has been forcefully rebranding itself, trying to shed its image as a temple of transistors, parts, and cables. Polished executives have parachuted in from the boardrooms of Safeway, Kmart, and Coca-Cola to turn the iconic American retailer around after years of underperformance and uncertainty. (In 2007, The Onion summed up the brand’s decline with the satiric headline “Even CEO Can’t Figure Out How Radioshack Still in Business.”)

The plan? The new bosses want to turn RadioShack into a hipper, more mainstream place for “mobility” — which is what they insist on calling the cell phone market. (In an interview, RadioShack’s marketing chief used the word mobility an average of once every 105 seconds.) Selling phones is central to the new RadioShack. And so far, it seems to be working. Per-store sales are up, and corporate profits jumped 26 percent in the fourth quarter of 2009.

Wall Street seems to like the strategy. After Apple finally deigned to let the chain sell iPhones late last year, the same Morgan Stanley analyst who in 2008 had described RadioShack as “a decaying business model” lauded its “growing relevancy as a wireless destination.” And in early March, the company’s stock price was pumped up by unsubstantiated rumors that it might be taken over by an investment firm. If nothing else, the gossip could suggest that RadioShack has whipped itself back into respectable-enough shape to be a plausible investment target.

But a small subculture of RadioShack nostalgics, including many former employees, have watched all this unfold with sorrow — if not a feeling of betrayal, then at least loss. The last nails are being hammered into the coffin of the little electronics hobby shop they once loved. And the cell phone seems to be an apt symbol for the superficiality and ordinariness they feel are taking its place.

“You walk into a regular RadioShack and it’s become like a neurosis,” Cohen says. “‘Sir, can I sell you a cell phone today? How old is your cell phone? What about your family, do they have cell phones?’”

The story of RadioShack’s evolution over the past half century turns out to be the story of America’s changing relationship with technology. The RadioShacks of old catered to customers who could diagnose a busted TV on their basement workbench. They might be messing around with some project on a Saturday afternoon, find that they were missing a part, and hustle out to the nearest RadioShack for some of the very gear Cohen still stocks.

But his shop is a lone outpost; in a single generation, the American who built, repaired, and tinkered with technology has evolved into an entirely new species: the American who prefers to slip that technology out of his pocket and show off its killer apps. Once, we were makers. Now most of us are users.
“We are not looking for the guy who wants to spend his entire paycheck on a sound system,” RadioShack’s chair, Charles Tandy, bragged to analysts in the mid-1970s. “We are in the do-it-yourself business.”

Craftiness was in Tandy’s bloodline. He cut his teeth helming the family business, the Tandy Leather Company, which sold leather and leatherworking tools to veterans’ hospitals and Boy Scouts. The cigar-chomping Texan was the kind of eccentric, larger-than-life executive that any modern PR handler would keep tightly muzzled. He celebrated his 60th birthday by riding a rented elephant around the grounds of his mansion, and he kept a plastic breast on his desk that made a gong sound when he pressed the nipple. It was how he called for more coffee.

Tandy recognized that leatherworking was probably not a growth industry, and in 1963 he strong-armed his board of directors into buying and pouring money into RadioShack, then a 42-year-old company with nine stores. RadioShack quickly ballooned into a chain of more than 6,000 locations, becoming a kind of cluttered general store for the pioneers of the electronic age. That growth was spurred on in the mid-’70s, when the company smartly got in front of one particular technological fad: the CB radio craze. At the peak of the boom, RadioShack was opening three new stores a day. (”Americans sure like to jabber,” a befuddled executive told the press.)

This is not to say Charles Tandy himself was an early adopter or technogical visionary. According to the book Tandy’s Money Machine, by Irvin Farman, when a RadioShack vice president rushed down to Tandy’s departing Lincoln Continental to tell him they had created a promising prototype of a computer, Tandy shot back, “A computer? Who needs a computer?” Nevertheless, by 1977, the company was preparing to unveil the TRS-80, the world’s first mass-produced, fully assembled PC.

“I remember the TRS-80 very well,” says Forrest Mims. At the time, Mims had already begun his career writing how-to books like Getting Started in Electronics and Engineer’s Notebook, definitive editions in the world of hobby electronics that have sold more than 2 million copies. The books were written exclusively for RadioShack and were offered in stores for a few dollars each. They were essentially giveaways; the real money came from all the diodes, transistors, and tools that hobbyists needed to build the circuits he diagrammed. It was a shrewd tactic. Those little parts and pieces had huge markups — some as high as 500 percent — and RadioShack could fit lots of them in its relatively small stores.

Mims was invited to take a look at the TRS-80, before it went on sale, at a RadioShack R&D unit located in a warehouse in downtown Fort Worth. The two young engineers who had developed the machine led him around. “They escorted me into this room,” Mims recalls. “It was all hush-hush.” Inside, arrayed on long tables, were two dozen TRS-80s, with cassette decks for data storage and 12-inch RCA monitors. They were being tested, and each had an image on its screen of a waving American flag. “It was really a shock,” Mims says. He had never seen 24 computers in a room before; in those days, if you wanted a personal computer, you pretty much had to build it yourself.

One of the engineers invited Mims to sit down and try out the TRS-80 — just fool around on it a little. He declined. “I didn’t have a clue how to use the thing,” he says. Mims was an expert engineer, but he didn’t know anything about the machine’s programming language, Basic.

A new era was beginning. Computers, and all consumer electronic goods, were on their way to becoming what they are today: slick low-cost commodities heaped in the aisles of big-box stores. When they break, it’s cheaper to throw them out than open them up and repair them, and most can’t be sold for the kind of profit margins required by small stores like RadioShack. In retrospect, the launch of the TRS-80 was probably the most promising moment in RadioShack’s history — and the start of its decline.

“Let’s put it this way,” Mims says. “Hobby electronics peaked with the advent of the ready-made PC. There was no longer a need for anyone to build digital displays and TTL processors in their garage or spend time messing with circuitry. Now you could spend time at a keyboard, working on an actual computer.” It was a fulfillment of a dream. But it also served as a portent that the hands-on way of life RadioShack embodied would become irrelevant.

Mims couldn’t use the TRS-80 that day because he knew much more about how that piece of technology was wired on the inside than how to do anything with it. In other words, he was the exact opposite of today’s typical consumer. And that cultural shift is what RadioShack has been struggling with ever since.

The TRS-80 may have signaled the arrival of modern consumer electronics, but that revolution largely failed to transform RadioShack. The company, with its roots stuck deep in the DIY business, sold electronic products under the Tandy and Realistic brands, but they suffered in comparison with brands like Sony and Panasonic. Now the company is trying to engineer a dramatic change of course. Last August, it launched a $200 million “brand transformation” effort — not changing its name, exactly, but instead asking America to call it by a nickname: the Shack.

The company ran bizarre animated television spots. In one, a gaggle of Albert Einsteins scampered into a dump truck; in another, cell phones in Nordic attire sang in the native tongue of “Phonelandia.” (The message: “The Shack sells more phones than the population of Scandinavia.”) An outdoor party called the Summer Netogether was held simultaneously in San Francisco and New York City in front of two 17-foot laptop mock-ups and streamed live on the Web. But as the hours crawled on, the event started to feel like a painfully long red-carpet party with no main event to follow. At one point, there was a dance contest. One entrant whipped off his prosthetic leg and air-guitared with it.
Chief marketing officer ` says the aim has been to make RadioShack synonymous with mobile phones and “unwind decades of brand misconception.” The problem, in short, was that Americans didn’t think RadioShack was cool. To the extent that most people thought about RadioShack at all, it was as a convenient place to grab some printer ink or a hearing-aid battery.

Between 2004 and 2009, the company’s profits fell by 39 percent. It had gotten to the point where, early last year, executives were putting a little too much hope on the nationwide switch-over to digital TV, imagining that folks coming in to buy conversion boxes could be seduced into other, more expensive purchases, too. But the little old ladies with coupons for government-subsidized antennas were resistant to impulse buys.

Still, where giant specialty retailers like the Good Guys and Circuit City rode the electronics boom and bust right into bankruptcy, RadioShack has survived, although that survival was less a matter of salesmanship than cost-cutting. Around the time new CEO Julian Day took over in 2006, the company liquidated poorly selling inventory, closed 481 stores, and squeezed $100 million out of administrative expenses; even the houseplants in RadioShack stores were sold — to employees for $5 each — to save on the cost of watering them.

One of Day’s other priorities has been to meticulously homogenize RadioShack stores, á la McDonald’s and Starbucks. Whereas the company once gave store managers an astounding amount of autonomy, a recently distributed internal handbook provides precise instructions for everything from organizing merchandise on the show floor to which cleaning fluid they must use to shine their metallic lower shelves. (Armor All Original formula, if you’re wondering.) Another page presents, with a series of painstakingly annotated photographs, the head-to-toe elements of the only two acceptable styles of dress for salespeople: Traditional Business (tie, optional vest or blazer, light-colored shirt, dress shoes) and RadioShack Casual (black, white, or red shirt, no tie, dress loafers).

Day’s efforts have made the company look better on paper, but it was only when it began to sell itself as a place to comparison-shop for wireless phones and calling plans that RadioShack began to seem viable again.

It may seem strange that, finding themselves in a financial morass, executives decided their best option was to compete head-to-head with both the wireless carriers’ own stores and the cell phone departments of giants like Walmart and Best Buy. But they may have had little choice: The average RadioShack store is only 2,500 square feet and can’t possibly stock a competitive selection of large appliances like flatscreen TVs. (Managers have had to stash merchandise in the rafters or rent off-site storage units in the run-up to Christmas.) Cell phones, on the other hand, like the parts and pieces the company once thrived on, are small products with exceptionally high profit margins. There’s the handset and the accessories, but most important, there’s the commission that wireless carriers pay to cell phone retailers for every new contract on a phone. A phone is like a tiny slot machine that pays off month after month.

The logic is hard to resist, and in fact, RadioShack’s focus on wireless has been building gradually for at least the past decade — always at the direct expense of hobbyists, says Tim Oldham, a former corporate buyer at the company. “They intentionally decided to downsize the product offering for hobbyists, all the capacitors and resistors and connectors,” in order to cram in more phones, Oldham says. “It’s not coincidental. The money was just too big.”

Applbaum says he doesn’t want to “disenfranchise” hobbyists, but his job is to bust RadioShack out of that niche and reintroduce it to people as a competitive, mainstream retailer of consumer electronics. Especially mobility. Applbaum wants to send a message: “The RadioShack of yesterday … is not the RadioShack of today.”

Andy Cohen is not an unreasonable man. He’s willing to admit — begrudgingly — that he doesn’t totally disagree with what RadioShack is doing. “As a stockholder at a lot of other companies, I look at what Julian Day is doing and I think, actually, that looks like the right thing to do.” His shop is an anomaly, Cohen says — a product of its idiosyncratic community. He doesn’t pretend it’s some kind of concept store RadioShack ought to roll out nationwide.

Cohen takes pride in the fact that his store carries only a single model of cell phone: a bulbous white handset called the Jitterbug. It has no features to speak of — it’s basically the mom jeans of mobility.

Cohen and his store manager, Steven Muscarelli, have made the centerpiece of their shop something they call the Make Case. Make magazine, the quirky bible of the DIY community, happens to be headquartered down the street, and in a glass showcase right under the register, Cohen and Muscarelli have an exhibit of back issues, tools, printed circuit boards, kits, and a slew of components to screw around with: ultrasonic range finders, dual-axis accelerometers, microbots. (There are also a bunch of Star Wars action figures in the Make Case, just because.) Muscarelli says people will come in, pick up an issue of Make, buy all the stuff they’ll need to build a particular project or hack outlined in the magazine — like a TV-B-Gone or a USB device charger made from an Altoids box — then head off to their garages. “They come back in later and say, ‘Look what I made!’”

But elsewhere, it’s a grim time for old RadioShack diehards. Mike D’Alessio, a once-devoted customer in Illinois who grew up playing with crystal radios and electronics kits he bought at his local RadioShack, tells me, “We’re living in a disposable world. It’s just not worth it to repair things; it’s not worth it to build things from scratch. The magic of that seems to have passed.” For reasons he can’t fully articulate, D’Alessio felt moved to scan 67 years’ worth of old RadioShack catalogs, page by page, and post them online. He often gets grateful emails from wistful or disenfranchised former customers and employees.

“Some people say RadioShack is just a store,” D’Alessio says. “But to me it was an idea — a learning and resource center that really shaped people’s lives.” D’Alessio has started talking about the company in the past tense.

Tuesday, April 6, 2010

Unpaid Internships May Be Illegal

New York Times: “With job openings scarce for young people, the number of unpaid internships has climbed in recent years, leading federal and state regulators to worry that more employers are illegally using such internships for free labor. Convinced that many unpaid internships violate minimum wage laws, officials in Oregon, California and other states have begun investigations and fined employers.” The U.S. Department of Labor issued “Training and Employment Guidance Letter 12-09” that explains when a person can be an unpaid trainee rather than an employee. The Guidance Letter states:

The U.S. Department of Labor’s Wage and Hour Division (WHD) has developed the six factors below to evaluate whether a worker is a trainee or an employee for purposes of the FLSA:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction;
2. The training is for the benefit of the trainees;
3. The trainees do not displace regular employees, but work under their close observation;
4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded;
5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and
6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

If all of the factors listed above are met, then the worker is a “trainee”, an employment relationship does not exist under the FLSA, and the FLSA’s minimum wage and overtime provisions do not apply to the worker.

John G. McCoy, Innovator in Banking, Dies at 97


John G. McCoy, who transformed the smallest bank in Columbus, Ohio, into the national powerhouse Banc One, died Sunday at his home in New Albany, Ohio. He was 97.

His death was confirmed by his son, John B. McCoy.

Mr. McCoy was the bank’s chief executive from 1958 to 1983, during which the bank’s assets increased to $8 billion, from about $140 million.

Early on, Mr. McCoy identified growth opportunities for his bank in consumer-friendly customer service and in acquiring other banks.

“I had to sit down and figure out what kind of a bank I wanted to run,” Mr. McCoy told The New York Times in 1981. “Right away I realized that I wanted to run a Tiffany’s, not a Woolworth’s.”

In the 1950s, for example, when many people still received their salaries in cash and banks often had only one office, Mr. McCoy began building branches and had them open on weekends.

In the 1970s, because securities firms were not permitted to offer checking accounts to their money market mutual fund customers, Banc One signed an agreement with Merrill Lynch in which the bank offered checking accounts to 300,000 Merrill customers.

Banc One was also an early adopter of services like drive-through banking, A.T.M.’s, credit cards and debit cards.

But being an early adopter didn’t always pan out. Before the era of online banking, for example, Banc One tested in-home banking via set-top boxes connected to televisions. But customers weren’t ready for such technology.

Banc One also invested in information technology research, earning a reputation as a leader in data processing. By the 1980s, the bank was processing credit card transactions for dozens of other banks.

But Mr. McCoy had conservative lending policies, courting smaller companies instead of the country’s biggest corporations.

“He used to say ‘I’d rather make a thousand loans for $1,000 than one loan for $1 million,’ ” his son recalled, “because no matter how good you are, you are always going to have one loan go bad.”

In 1979, Banc One ranked first in profitability among the country’s 100 largest bank holding companies.

For Mr. McCoy, banking was also a family business.

He was the second of three McCoys to lead the bank, originally called the City National Bank and Trust. The third was his son, who took over in 1983, serving as its chief executive until 1999.

John G. McCoy was born in Marietta, Ohio, on Jan. 30, 1913, the oldest of five children of John H. and Florence McCoy.

His father was an oilman and banker who moved the family to Columbus in 1930s after the governor of Ohio asked him to supervise the closing of banks that had failed during the Depression. In 1933, his father became president of City National Bank and Trust.

John G. McCoy attended Marietta College in Ohio. He also graduated from the Stanford Graduate School of Business with a master’s degree in business administration.

Mr. McCoy joined City National in 1937. He married his wife, Jeanne Bonnet, in 1941. She died in 2006.

Besides his son, of Columbus, Mr. McCoy is survived by a daughter, Virginia McCoy of Kansas City, Mo.; three grandchildren; and seven great-grandchildren.

In 1958, after his father died, Mr. McCoy became president of City National Bank. He changed the name when he created a bank holding company that became known in 1979 as the Banc One Corporation. But the bank’s branches, like Bank One Columbus, used a “k” in the name.

A 1991 article in The New York Times described Banc One as the best-run bank among regional powerhouses and “perhaps the best bank in America.”

During Mr. McCoy’s son’s tenure, Banc One became one of the country’s largest banks, when it purchased First Chicago Bank for $21 billion. After the merger, the bank moved its headquarters to Chicago. John B. McCoy resigned in 1999 after the bank had earnings shortfalls. The board hired Jamie Dimon as chief executive in 2000.

JPMorgan Chase bought Banc One in 2004. Chase later changed the name of its two-million-square-foot corporate offices in Columbus to the McCoy Center.

Wednesday, March 10, 2010

Starbucks’ Midlife Crisis

The coffee giant can’t quite accept its own customers’ tastes.

Greg Beato from the March 2010 issue

Last summer in Seattle, Starbucks opened 15th Avenue and Tea, an unbranded café featuring “small batch coffees sourced from individually owned farms” and a variety of fussy brewing methods designed to appeal to those connoisseurs who believe a cup of $4 coffee ought to be at least as complicated to make as a Big Mac. Live music is provided by a small-batch indie rock piano band sourced from a tiny town in Wisconsin. There’s an in-house “tea master,” and occasional outbreaks of poetry. Starbucks is 39 years old now, and like a lot of 39-year-olds, especially those who’ve experienced great success in their salad years but are beginning to wonder if they’ve lost their touch, it’s having a bit of an identity crisis.

In 2008, Starbucks closed 661 under-performing locations. In 2009 it shuttered an additional 300 stores and laid off 6,700 employees. In an attempt to position itself against newer, hipper rivals, the company started talking up its “heritage.” It resurrected a less polished version of its logo for use in certain branding situations. Presumably, its coffee is still brewed from coffee beans, but everything else in its new stores seems to have made a radical career switch. The bar at a London Starbucks is upholstered with scraps from an Italian shoe factory. The countertop at the Paris Starbucks is made out of recycled cell phones.

For all their ostensible authenticity, such adventures in interior design cannot match the truly radical act of installing espresso machines in bank lobbies. Like Seattle’s other great cultural export from the early 1990s, Nirvana, Starbucks has always been most vital, most interesting, most revolutionary when at its most commercial.

Granted, not everyone thinks of the chain as radical. Take Bryant Simon, a historian at Temple University. In his 2009 meditation on Starbucks, Everything But the Coffee, he offers the usual critiques of the company. It says it sells coffee, but it doesn’t. It says it’s a venue for conversation and civic discourse, but it isn’t. It sells overpriced coffee-like beverages and a safe, predictable, environment. It preys on needy, status-seeking consumers by offering them clean bathrooms, innovative products, and a soothing ambiance in myriad convenient locations. For Simon, Starbucks was designed to be an exclusive, elitist institution: When CEO Howard Schultz began adding locations in the late 1980s, he “made sure to put his stores in the direct path of lawyers and doctors, artists on trust funds and writers with day jobs as junk bond traders.”

If you’re thinking to yourself, damn, that’s totally unfair to writers with day jobs as unemployed writers, well, yes, that was Schultz’s evil scheme! He wanted to introduce fancy coffee to people who weren’t already drinking fancy coffee. So, Simon reports, “unlike an owner of one of the beat coffee shops in the 1950s, he didn’t set up in transitional neighborhoods or fringe places like, for instance, Chicago’s neobohemian Wicker Park.”

In the late 1980s, of course, there weren’t many cafés serving high-quality coffee anywhere. Coffee consumption per capita was at its lowest point since 1962, soft drinks had recently surpassed hot caffeine as the nation’s favorite beverage, and Coke was in the midst of a campaign advertising its utility as a breakfast drink. The few cafés that were selling espressos and capuccinos, however, were located precisely in places like Wicker Park.

In choosing to locate his outlets in busy downtown locations, Schultz was expanding the world of high-end coffee—diversifying it, in fact, by taking it beyond its insular, self-conscious subculture. The décor of his stores amplified this process. They had the clean and slick streamlining of a fast food restaurant but were more comfortably appointed. Instead of walls lined with old books, there were gleaming espresso machines for sale, packages of whole beans, ceramic cups. They felt a little like a Williams-Sonoma store crossed with an unusually tasteful airport lounge. They were cafés for people who would never set foot in a bohemian coffeehouse, people traditional coffeehouse entrepreneurs had completely ignored.

For less than the price of a Whopper, you could hang out in a sophisticated middlebrow lounge/office for hours on end. And they were popping up everywhere. Exclusive, elitist? Starbucks was exactly the opposite, introducing millions of people who didn’t know their arabica from their robusto to the pleasures of double espressos. Finally, good coffee had been liberated from the proprietary clutches of hipsters, campus intellectuals, and proto-foodies and shared with bank managers and real estate agents. In offices across America, it suddenly smelled like ’ffeine spirit.

For Schultz, this mainstream customer base was both a boon and a curse. In Pour Your Heart Into It, his 1997 account of Starbucks’ rise to global behemoth, he reveals a preoccupation with authenticity that echoed Kurt Cobain’s. In 1989, he initially balked at providing non-fat milk for customers—it wasn’t how the Italians did it. When word trickled up to him that rival stores in Santa Monica were doing big business in the summer months selling blended iced coffee drinks, he initially dismissed the idea as something that “sounded more like a fast-food shake than something a true coffee lover would enjoy.”

Eventually, Schultz relented. And really, what greater punk-rock middle finger is there to purist prescriptions about what constitutes a true coffee drink than a blended ice beverage flavored with Pumpkin Spice powder?

Simon recounts the birth of the Frappuccino in Everything But the Coffee too, but while he acknowledges the grassroots origins, he quickly positions it as an item the chain is “pushing” on “caffeine-dependent women and men.” In his estimation, the company’s “consumer persuaders” and “mythmakers” are the ones with real power. They’re constantly selling false promises, implanting “subliminal messages” in store décor, and otherwise manipulating hapless consumers.

In reality, the chain’s customers have played a substantial role in determining the Starbucks experience. They asked for non-fat milk, and they got it. They asked for Frappuccino, and they got it. What they haven’t been so interested in is Starbucks’ efforts to carry on the European coffeehouse tradition of creative interaction and spirited public discourse.

Over the years, Starbucks has tried various ways to foster an intellectual environment. In 1996 it tried selling a paper version of Slate and failed. In 1999 it introduced its own magazine, Joe. “Life is interesting. Discuss,” its tagline encouraged, but whatever discussions Joe prompted could sustain only three issues. In 2000 Starbucks opened Circadia, an upscale venue in San Francisco that Fortune described as an attempt to “resurrect the feel of the 1960s coffee shops of Greenwich Village.” The poetry readings didn’t work because customers weren’t sure if they were allowed to chat during the proceedings. The majority of Starbucks patrons, it seems, are happy to leave the European coffeehouse tradition to other retailers.

At 15th Avenue and Tea, the quest to cultivate highbrow customers continues. There’s a wall covered with excerpts from Plato’s dialogues. Blended drinks are banned from the premises, and you can safely assume that Bearista Bears, the highly sought-after plush toys that Starbucks has been selling since 1997, won’t ever appear here either.

But if Starbucks really hopes to re-establish its authority as an innovative, forward-thinking trailblazer, it should perhaps use its next experimental venue to honor its heritage as the first chain to take gourmet coffee culture beyond the narrow boundaries of traditional coffeehouse values and aesthetics. Imagine a place with matching chairs, clean tables, beverages that look like ice cream sundaes, Norah Jones on the sound system, and absolutely no horrid paintings from local artists decorating the walls. A place, that is, exactly like Starbucks!

Because despite its ubiquity, despite its advancing years, Starbucks is still the most radical thing to hit the coffeehouse universe in the last 50 years.

Tuesday, February 16, 2010

What Bankrupted Greece? It Was The Olympics!

Here's an angle on the Greek financial crisis I hadn't considered: Victor Matheson, a member of the Sports Economist group blog, argues that one reason the Greeks wound up in such deep financial trouble is that they went deep in hock to pay for the Olympics:

Greece's federal government had historically been a profligate spender, but in order to join the euro currency zone, the government was forced to adopt austerity measures that reduced deficits from just over 9% of GDP in 1994 to just 3.1% of GDP in 1999, the year before Greece joined the euro.

But the Olympics broke the bank. Government deficits rose every year after 1999, peaking at 7.5% of GDP in 2004, the year of the Olympics, thanks in large part to the 9 billion euro price tag for the Games. For a relatively small country like Greece, the cost of hosting the Games equaled roughly 5% of the annual GDP of the country.

Of course, the Olympics didn't usher in an economic boom. Indeed, in 2005 Greece suffered an Olympic-sized hangover with GDP growth falling to its lowest level in a decade.

That would certainly follow the pattern of crazy civic development projects in which stadiums and museums are supposed to somehow substitute for everything that is missing in the local economy. But the governments in question don't usually end up in receivership.

Fun Olympic factoid of the day: the television news yesterday reported that the Whistler ski complex had essentially been developed in the hopes of the area someday scoring a winter Olympics. I have no idea if this is true, but it seems both plausible and deeply troubling.

Sunday, January 17, 2010

Procter & Gamble to Test Online Store to Study Buying Habits


Procter & Gamble Co. plans to launch an online store that will sell key brands, aiming to study consumer buying habits as it counters moves by traditional retailers, which have reduced the variety of brands they carry.

P&G spokeswoman Tressie Long said the company sees the new online store as more of a "learning lab," where it can study consumers' online buying habits, rather than as a direct source of sales growth. P&G, which already sells its products online through the Web sites of such retailers as Wal-Mart Stores Inc., says it will share what it learns with retailers that carry its brands.

P&G's new "eStore" will start as a pilot using 5,000 consumers in coming days. The site will carry only P&G products but will be owned and operated by PFSweb, an e-commerce service provider. Pricing on the site will be at the discretion of PFSweb, P&G says.

Not every P&G product will be available via the site initially, although big brands including Tide, Pampers and Olay will be sold there. The new Web site, at, is not yet publicly accessible but will be up for use beyond the pilot program in the spring. There will be a flat $5 shipping fee for all orders.

Procter & Gamble has increasingly been looking for new avenues of growth as consumers have cut back. In recent months the company has said it will push to sell more of its products online,

Despite P&G's push into the online medium, sales at traditional retailers will remain key to its business. P&G gets about half a billion dollars in online sales, a fraction of its roughly $79 billion in annual sales. Researcher Nielsen estimates online sales of consumer packaged goods including food, beverage, health and beauty aids and household cleaners increased 20% to 25% between 2004 and 2008, hitting roughly $10 billion in 2008.

In separate news, Procter & Gamble plans to end its fragrance licensing agreement with Valentino Fashion Group, according to a person familiar with the matter. Puig Beauty & Fashion Group SL, the Spanish fashion and fragrance company, is expected to take over the license from P&G in February 2011, this person said.

P&G produces a number of fragrances for Valentino, which is owned by U.K. based private-equity fund Permira. But sales never reached the heights of P&G's other fragrance licenses, including those with Gucci and Dolce & Gabbana, which last year launched a makeup line.

A spokeswoman from P&G declined to comment. A spokesman from Puig couldn't be immediately reached for comment.

P&G wants to weed out underperforming brands to focus on its more competitive products. The company has been moving into luxury beauty products, including the expansion of skin care line SK-II and its acquisition of high-end men's grooming lines like The Art of Shaving.

Saturday, January 9, 2010

Banks vs. Credit Unions

Would a credit union be a better alternative for you? The Early Show's financial contributor Vera Gibbons compares banks and credit unions.

Broadcast TV in 2010: Death or Rebirth?

By Josef Adalian
Published: January 04, 2010
The nation's TV critics just spent the last two weeks raving about the small screen's creative triumphs over the past decade, with more than a few heralding a new golden age for the medium.

So why do the folks who run the industry -- particularly those who work at the big networks -- still feel so queasy heading into the '10s?

The short answer: While cable's renaissance means there are more networks with more "hit" shows than ever before, the windfall profits such success once guaranteed for the Big Four are harder than ever to reach.

The Age of Monster Hits like "Friends" and "Seinfeld" and "Law & Order" -- and the massive profits they once generated -- is over. Midrange success stories are the new 40 share. (See accompanying story about the movie industry: "Hollywood Cuts, Retools and Looks to the Future.")

No, network TV isn't on its deathbed, despite the rantings of some doomsayers. But the industry is still in for several more years of transition as executives look to radically remake the business model for broadcast TV.

Signs of change are everywhere:

-- News Corp.'s Chase Carey decision to go to the mat with Time Warner Cable over the New Year's holiday wasn't about pride. Networks like Fox simply can't thrive on advertising revenue alone anymore, particularly with some projections showing Madison Avenue will continue to cut back on network ad buys even as the overall economy improves.

-- Much of the pre-announcement hype over Apple's so-called "iSlate" has focused on its potential to bolster print. But the computer giant also has been talking to multiple networks about a monthly subscription service for TV shows. It's not hard to see TV programming being a big part of iSlate. Likewise, it's possible networks could use the internet to experiment with models where subscribers get first crack at big events -- anything to replace the dollars lost from shrinking syndication monies.

-- Despite the flak NBC has taken over its Jay Leno experiment, the Peacock may actually be the canary in the coal mine for broadcasters. The fact is, networks have no choice but to look for ways to reduce the number of hours they devote each week to high-cost scripted programming. Even reality TV -- once thought to be a panacea for the cost problems of networks -- has gotten more expensive and has ended up with the same rough success-to-failure ratio as comedy and drama. Don't be surprised to see more repeats in regular timeslots as networks finally concede that they can't afford 20 hours-plus of first-run fare every week.

-- Entire dayparts are disappearing or radically evolving. We've already seen the networks get out of the kids business. Daytime could be next, with two long-running soaps toast and more casualties highly likely soon.

-- The local-stations business, once a source of steady revenue for conglomerates such as NBC Universal and CBS, is now a drain on profits, thanks to a near-complete collapse of premium local advertising (there's a reason many stations now air informercials in the middle of the day, rather than just late at night).

There’s renewed talk the whole network-local affiliate relationship could be on the brink of crumbling as broadcasters seriously consider something they've mulled for years: transforming into cable networks.

And yet, while times are clearly still tough, they're also filled with opportunity. And as stomach-churning as 2010 promises to be for the TV business, indications are that broadcasters are -- ever so slowly -- starting to figure out how to adapt to the reshaped landscape of the business.

Consider: Lost in all the drama of "Will Fox pull the plug on Time Warner?" is the fact that nobody seemed to think News Corp. was crazy for demanding serious compensation for its signal.

At the start of the last decade, cable companies scoffed at the idea that they'd ever pay cash for free over-the-air TV. CBS broke ground with a few deals a while back, but they didn't produce serious money.

While Time Warner and Fox aren't yet revealing the terms of their pact, it's clear Fox got a record sum from a cable operator for its programming. Broadcasters' decades of dreaming about matching cable's dual revenue stream may soon be over -- and while it won't make up for dwindling syndication and ad revenues, it will help. A lot.

Likewise, major media companies' push to get paid for their content could yet result in another new revenue stream for broadcasters. The talks with Apple hint at this. Hulu's declaration that it may yet charge for some content is another sign of digital pennies slowly morphing into dimes, quarters and maybe even dollars.

The decline of the traditional 100-episodes-to-syndication-nirvana also may prove liberating to network programmers, and not so catastrophic for broadcast bean counters.

After all, freed from the burden of trying to produce as many episodes as quickly as possible in order to get to the back end ASAP, broadcasters could start to experiment more with the idea of limited-order series. Or shortened episode counts.

That could lead to even better shows. Maybe big talent that would never commit to the drudgery of virtual nonstop production for seven years -- the reality of a hit drama or comedy in the past -- might consider signing on for a three-year gig in which only 13 episodes are produced every 12 months.
It's a model that has allowed cable networks from FX to HBO to land major names who'd never do a network show.

Then there's the promise of technological revolution. Just as James Cameron's "Avatar" offers the hope of keeping moviegoing an in-theater experience, TV soon could get a 3D boost as well.

The big buzz at this week's Consumer Electronics Show is all about 3D TV, which is months -- not years -- away from becoming a reality. It won't be cheap, but there are thousands of hours of programming that could suddenly become a lot more valuable if converted to 3D. Bottom line: It's another source of potential profits to a business that needs as many as it can find.

As the Awful Aughts fade into memory, it would be nice to be able to predict smooth sailing ahead for broadcasters. It would also be naive.

But that doesn't mean there's not reason to hope that, like a TV icon from a simpler time, the networks might just make it after all.

Monday, January 4, 2010

H&R Block Beware!

IRS to Boost Oversight of Paid Tax Preparers


WASHINGTON—The Internal Revenue Service said it intends to regulate the legions of American tax-preparation companies, the first time the agency has sought to oversee these businesses. The move could affect how tax returns are prepared for tens of millions of people.

Under the new rules, employees of chain tax-preparation firms including H&R Block Inc. and Jackson Hewitt Tax Service Inc. will be required to pay a registration fee to the IRS, pass a "competency" exam and have 15 hours of education a year. Previously these employees weren't required to meet federal standards.

The requirements also will apply to hundreds of thousands of independent preparers and mom-and-pop storefronts that offer tax preparation as one of several services. About 60% of U.S. taxpayers use tax preparers, according to the IRS. That number includes certified public accountants, or CPAs, who are already subject to professional standards and aren't covered by the new rules.

The plan will take several years to implement and won't be in effect when taxpayers prepare their 2009 taxes for this April, the IRS said. But starting in 2011, all paid tax preparers will have to register with the IRS and include a unique identification number on any returns they prepare. Preparers will be given three years to pass a competency exam in either individual or small-business taxation.

"This is something that is long overdue," IRS Commissioner Doug Shulman said Monday. Until now, there have been "no national, professional standards for one of largest financial transactions individuals have each year," he said.

The IRS's move comes as Washington has looked to toughen regulatory oversight across the board, particularly in financial markets. Congress has toughened rules applying to credit-card firms. The White House is pushing an overhaul of financial regulation that would cover previously untouched or lightly regulated areas, like derivatives and hedge funds.

Some of the nation's largest tax preparers either welcomed or pushed for the new rules, seeing an advantage in regulations that could weed out some of their smallest competitors.

"We welcome the spotlight," said Kathryn Fulton, senior vice president for government relations at H&R Block, which said its business will be helped by forcing competitors to meet standards the firm already follows. "We think this should apply across the board," she said.

The testing and education requirements will apply to the preparer who actually signs the returns—a potential loophole that could allow chains such as H&R Block to avoid meeting requirements for preparers who work under a supervisor.

Intuit Inc., the maker of TurboTax, was among those lobbying for stricter oversight. Last year, 21 million tax returns were filed with the software, according to Julie Miller, an Intuit spokeswoman. Intuit staffs its hotlines primarily with CPAs and enrolled agents, workers who aren't accountants, but who are tested and certified by the IRS.
Journal Community

* discuss

“ This is a classic case of bandaging a scratch on the finger while allowing the severed artery to bleed. How about fixing the tax code so we don't need tax preparers? ”

—Nicholas Micskey

Tax-preparation software isn't covered by the plan unveiled by Monday, but the IRS could move to craft federal standards in this area. Mr. Shulman said the IRS will form a task force to examine the software industry's record on issues from accuracy to taxpayer-data security.

Like CPAs, volunteer tax preparers, such as those that help low-income taxpayers at free clinics, won't be subject to testing or education requirements.

For consumers, the new standards have the potential to raise tax-preparation fees, if tax preparers incur new costs to follow the regulations.

The regulations are primarily aimed at smaller firms, often branding themselves as generic "tax preparers" or "tax consultants." Government auditors, in undercover visits to firms, found high levels of inaccuracies and distortions on returns.

In 2006, the Better Business Bureau received 1,473 complaints against tax preparers, which ranked them 120 out of about 3,800 industry categories. In 2008, the number of tax-preparation complaints jumped to 2,276, ranking the industry 80th. Often, the complaints concerned errors that caused consumers to pay fees to resolve the problem.

"We want to make this into a profession, not just a part-time thing you set up on the kitchen table for six weeks during the tax season," said Frank Degen, an enrolled agent based in Setauket, N.Y. Enrolled agents have also been pushing for higher standards. "The good people have nothing to fear; it's the charlatans that hopefully will be rousted out."

Tom Ochsenschlager, a CPA and vice president at the American Institute of Certified Public Accountants, said the IRS has taken on a huge task in becoming "the consumer protection agency for tax preparers." He added: "Enforcing this is going to be a major undertaking."

Mr. Ochsenschlager worried the new regulations could confuse some consumers, because they aren't as tough as those required to become a CPA.

The IRS's Mr. Shulman said the agency will develop a public database through which consumers will be able to determine whether preparers have registered and passed the exam. The IRS said it also will explore whether to try to combat the growing use of refund-anticipation loans, in which firms offer upfront cash to customers expected to receive an IRS refund.

Sunday, January 3, 2010

SK Telecom gets IBM cloud computing platform

IBM has built South Korea's first cloud computing environment for SK Telecom. The cloud environment gives developers the software and hardware needed to develop applications that will allow SK Telecom to offer up to 20 new services to their customers by the end of 2009, such as sports news feeds and a photo service.

The IBM-built cloud environment will allow SK Telecom and its business partners to more quickly develop, test and publish new end-user services. The new cloud environment delivers the following business and technology benefits: all the servers, storage and middleware required for application development on a secure, stable environment; low up front costs and reduced investment risks of mobile content developers; and faster time to market and decreased barriers to entry of new services.

"Our efforts to develop services with IBM and other partners reflect the latest trends in Web 2.0, which will ultimately enhance our customers' experience," said Jong-tae Ihm, senior VP and head of SK Telecom's data network office. "Together with venture capital firms our aim is to create new business opportunities by rapidly commercializing the ideas of content developers, further advancing the development of the information and communication technology industry."

SK Telecom also operates an R&D test bed for developing and testing cloud computing technologies. By the end of 2009 the SK Telecom plans to accommodate more than 20 services for NATE, SK Telecom's WAP portal and in the coming years says it hopes to extend its entire IT infrastructure to the cloud model. This will in turn enhance the competitiveness of the cloud industry and foster business partnerships and cooperation.

"With this new environment SK Telecom will lead in innovation by offering IT infrastructure for software developers through a Platform-as-a-Service model," said Kang-yoon Lee, head of IBM's Cloud Computing Center in Korea. "We believe this project will be a model example in how enterprises in Korea and worldwide can leverage the cloud environment to support business requirements in continual change."

For this project IBM Korea worked jointly with SK Telecom to develop the entire cloud environment—from concept planning to hardware and software selection and implementation. The cloud includes 80 systems, comprised of both System x and blade servers, Xen virtualization technology and IBM middleware and service management technology. Service management is a key to any successful enterprise cloud computing project as it orchestrates hundreds—even thousands—of services in a workload-optimized fashion, maximizing efficiency of the overall system. SK Telecom is using IBM's Tivoli Service Automation Manager to enable software to be leased and installed seamlessly, and virtual machines provisioned accordingly. In planning the cloud architecture, SK Telecom also used implementation services and operation process consulting from IBM Global Technology Services through to implementation services and operation process consulting.